Excel Funds Management Inc.

The rural agricultural-based population which underpinned Prime Minister Narendra Modi’s rise to power is one of the biggest beneficiaries in India’s 2018-19 budget.

Presented on February 1, the election year budget was guided by a mission to uplift the agriculture sector, enhance rural development, and increase healthcare coverage. Spending on infrastructure also received a boost as part of the government’s ongoing focus on infrastructure development.

According to the budget, a series of structural reforms will propel India to be among the fastest growing economies of the world. It states that the country is firmly on course to achieve over 8% growth on the back of a rebound in manufacturing, services and exports.

Agriculture, a primary focus

In keeping with an earlier pledge by PM Modi to double farmers’ income by 2022, the agriculture sector will benefit from a number of initiatives aimed at improving the welfare of farmers and perpetuating the growth of the sector. Among the key initiatives in the agriculture sector are:

A Minimum Support Price (MSP) of 1.5 times more than the input cost was announced for various agricultural crops, fulfilling one of the most important promises made in Modi’s manifesto.The budget also announced that a mechanism will be developed to facilitate coordination with State Governments to ensure that farmers get the MSP for their produce.

The budget also proposed an institutional mechanism for price and demand forecasting, which will enable farmers to make timely decisions about which crops to grow and in what quantities to ensure profitability.

In addition, an Agri Market Development Fund was established to provide the infrastructure for retail markets for agricultural produce; a new initiative, “Operation Green” was launched to enable farmers to produce products for the retail market at suitable prices; and cooperatives and individual investors can now obtain loans at favourable interest rates for fisheries and animal husbandry infrastructure.

Healthcare, the world’s largest program

The budget announced the establishment of the world’s largest healthcare programs, bringing the country closer to providing universal healthcare. Among the key initiatives announced in the budget are:

The establishment of a National Health Protection Scheme which will provide coverage to approximately 500 million people.

The program is aimed at benefiting 100 million poor families by providing coverage of up to $8,000 per family per year for secondary and tertiary care hospitalisation.

Through the National Health Protection Scheme, health care services will be brought closer to communities through the establishment of 1,500 health and wellness centres.

The government also plans to set up 24 new government medical colleges and hospitals by upgrading existing district hospitals.

It is estimated that almost one million jobs, particularly for women, will be generated by the new healthcare initiatives.

Rural Sector, uplifting the standards of the poor

In addition to initiatives announced for the agriculture sector which dominates the rural areas, the rural sector will also benefit from the following initiatives.

80 million poor women will get new connections to liquid petroleum gas.

40 million poor people will be connected to power.

The government plans to construct 20 million toilets in next fiscal year

The government remained committed to its “housing for all initiative” by 2022, with 5.1 million houses already constructed in rural areas and another 10 million expected to be constructed during the fiscal year.

Infrastructure, focusing on capacity creation

Railways to improve connectivity were the largest component of infrastructure spending in the budget which announced that India needs investment of US $780 billion in the infrastructure sector.

A large portion of railways capital expenditure will be devoted to capacity creation, including:

The first modern train-sets are to be commissioned during 2018-19

600 major railway stations to be redeveloped

Mumbai and Bengaluru rail networks will be expanded

4000 kilometers of railway network are to be commissioned for electrification during 2017-18.

18,000 kilometers of doubling, third and fourth line works and 5000 kilometers of gauge conversion would augment capacity and transform almost the entire network into Broad Gauge.

It was also announced that the capacity of the Airport Authority of India which runs 124 airports will be expanded five-fold and that 64 unconnected airports across the country will be connected.

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.

The information contained in this article is for informational and illustrative purposes only and is not intended to provide specific financial, investment, or other advice to you, and should not be acted or relied upon in that regard without seeking the advice of a professional. Particular investments or trading strategies should be evaluated relative to each individual.

Speculation or stated beliefs about future events, such as market and economic conditions, company or security performance, upcoming product offerings or other projections are “forward-looking statements.” These forward-looking statements represent the beliefs of the speaker or author and do not necessarily represent the views of Excel. General business, market, economic and political conditions could cause actual results to differ materially from what the speaker or author presently anticipates or projects.

Some of the information has been provided by external sources and is subject to change at any time. Excel Funds is not responsible for the accuracy, reliability or timeliness of the information supplied by external sources. Users wishing to rely upon this information should consult directly with the source of the information. Content provided by external sources is not subject to official languages, privacy and accessibility requirements.

India’s digital revolution is set to be powerful catalyst for economic expansion. It could potentially disrupt incumbents and reshape the business landscape at a faster pace than any other force in modern day India.

At the core of India’s digital revolution are three forces which are often referred to as the JAM Trinity: Jan Dhan Yojana, Aadhaar, and Mobile Penetration.

Incidentally, the revolution started with the implementation of Aadhaar in 2009, a project aimed at providing each citizen with a biometric identity, a unique 12-digit number that can be verified by fingerprint. It is estimated that 1.1 billion Indian citizens currently have biometric identities.

The biometric identities are linked to individual bank accounts, facilitating greater use of digital transactions.

Then in 2015, the government launched Digital India, with the aim of increasing connectivity through mobile and high speed internet networks. The project focused on three key areas – digital infrastructure as a utility to every citizen, E-governance and services on demand, and digital empowerment of citizens.

The third element of the JAM Trinity, Jan Dhan Yojana, is driven by government policy to promote greater financial inclusion by encouraging citizens to open bank accounts. It is estimated that most Indian households now have bank accounts.

Effectively, the JAM Trinity set the stage for rapid digitization, with the potential to benefit several sectors, among them consumer discretionary, financials, telecommunication services and information technology, which are poised to experience potentially strong growth.

For example, the financial sector is expected to benefit from the shift to a cashless society, greater use of credit cards, and the increasing ability of financial institutions to issue loans and other forms of credit.

Since bank accounts are already linked to the digital identities of account holders, more transactions are being conducted electronically.

The digital revolution is also facilitating greater use of credit cards for on-line commerce, benefitting the consumer discretionary sector. For instance, point of sale terminals of merchants are now equipped with finger scanners linked to the Aadhaar database. Therefore, citizens can conduct financial transactions using their digital identity, bank accounts and /or credit cards.

Incidentally, India’s young demographics are a boost to digital banking. They are more likely to use mobile phones and smartphones to conduct digital transactions.

The expansion of high speed broadband networks has led to a proliferation of the internet in both rural and urban communities, opening up tremendous opportunities for manufacturers and service providers to leverage their on-line connectivity to cater to their rapidly evolving needs; and to offer more targeted and cost-effective solutions.

With the on-line revolution gaining a stranglehold on the population at large, Indians are using the internet for everything ranging from e-commerce, social media, conducting financial transactions, e-mails, searches, entertainment, travel, education, jobs, and to communicate through a variety of different forums.

As well, given the growth of mobile devices and broadband connectivity, the telecom industry is set for expansion as digitization grows. And so is the broadcasting industry which has a mandate to provide cable services to all Indian households, including those in rural areas.

Evidently, India’s digital revolution is set to have an even greater impact as it penetrates the fabric of society and businesses, benefitting businesses that are inter-connected.

Disclaimer: Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.

The information contained in this article is for informational and illustrative purposes only and is not intended to provide specific financial, investment, or other advice to you, and should not be acted or relied upon in that regard without seeking the advice of a professional. Particular investments or trading strategies should be evaluated relative to each individual.

Speculation or stated beliefs about future events, such as market and economic conditions, company or security performance, upcoming product offerings or other projections are “forward-looking statements.” These forward-looking statements represent the beliefs of the speaker or author and do not necessarily represent the views of Excel. General business, market, economic and political conditions could cause actual results to differ materially from what the speaker or author presently anticipates or projects.

Some of the information has been provided by external sources and is subject to change at any time. Excel Funds is not responsible for the accuracy, reliability or timeliness of the information supplied by external sources. Users wishing to rely upon this information should consult directly with the source of the information. Content provided by external sources is not subject to official languages, privacy and accessibility requirements.

India’s Prime Minister Narendra Modi’s political party, the Bhartiya Janata Party (BJP) won two more state elections in India. The BJP managed to retain the state of Gujarat where it has been incumbent for over 20 years and managed to displace the Indian National Congress (INC or simply Congress) from the state of Himachal Pradesh.

As the counting of votes began on the morning of December 18, 2017, the initial trends pointed to a BJP win in Gujarat. However, the trend reversed momentarily, only to reverse again sometime later. In the end, the BJP won 99 seats in the assembly- seven more than the required number to form government. The BSE Sensex index ended the day at record high which the Indian media has credited directly to BJP’s poll wins1.

Commenting on BJP’s victory, Bhim D. Asdhir, President and CEO of Excel Funds, stated “Since Modi took over as Prime Minister, the number of states where the BJP and its allies have formed government has risen from 5 to 19 and the INC has consistently lost ground. And now, despite 22 years of incumbency, the BJP has managed to retain the state of Gujarat. This is a signal of faith people have in Modi and their desire for development.” Bhim also believes that the narrow victory margin could be a blessing in disguise for the BJP. “A result like this should keep the state government on its toes, motivating it to work hard to further the development agenda of India’s Prime Minister.”

Interestingly, the urban regions of Gujarat overwhelmingly voted for the BJP. Political commentators believe that this indicates that the pain caused by demonetization had ceased to be a factor in the elections. Moreover, the quick response of the government to the GST issues raised by businesses, may have further helped the BJP to retain the urban electorate2.

In the state of Himachal Pradesh, the BJP managed to win 44 out of 68 seats, ending 5 years of Congress rule. With these two wins, the BJP along with its allies now rules 19 out of 29 states in India.

The narrower than expected victory margin in Gujarat is expected to shift the focus of the government to rural constituencies and implement more people friendly programs and spend more on infrastructure upgrades to bring more balance to its development efforts 3.

[2] The Times of India, December 19, 2017, “GST sweeteners took sting out of Congress campaign in urban Gujarat”

[3] Bloomberg, December 18, 2017, ”Modi Gets a Reality Check in His Home State”

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.

The information contained in this article is for informational and illustrative purposes only and is not intended to provide specific financial, investment, or other advice to you, and should not be acted or relied upon in that regard without seeking the advice of a professional. Particular investments or trading strategies should be evaluated relative to each individual.

Speculation or stated beliefs about future events, such as market and economic conditions, company or security performance, upcoming product offerings or other projections are “forward-looking statements.” These forward-looking statements represent the beliefs of the speaker or author and do not necessarily represent the views of Excel. General business, market, economic and political conditions could cause actual results to differ materially from what the speaker or author presently anticipates or projects.

Some of the information has been provided by external sources and is subject to change at any time. Excel Funds is not responsible for the accuracy, reliability or timeliness of the information supplied by external sources. Users wishing to rely upon this information should consult directly with the source of the information. Content provided by external sources is not subject to official languages, privacy and accessibility requirements.

Buoyed by a recovery in the manufacturing sector, India’s economy rebounded in the quarter ended September 30, following five quarters of slowing growth. The country’s GDP growth rose to 6.3% for the July- September quarter, up from 5.7% in the previous quarter, which was the lowest growth rate in three years.1

As a result, the International Monetary Fund (IMF) has indicated that it may update India’s growth forecast in the January issue of its World Economic Outlook (WEO).2 Earlier, the IMF’s October 2017 WEO placed India’s GDP growth at 6.7% in 2017 and 7.4% in 2018.

The recent rebound in growth suggests that the Indian economy may have shaken off the lingering effects of the demonetization of high value currency notes in November 2016 and the rollout of the Goods and Services Tax (GST) in July 2017.3

“Perhaps the impact of the two structural reforms—demonetization and GST—is behind us and hopefully, we can look for an upward trajectory in the third and the fourth quarter,” noted India’s Finance Minister Arun Jaitley.4

According to India’s Chief Statistician, T.C.A. Anant, the manufacturing sector led the recovery, with the impact of the GST beginning to wane. The manufacturing sector grew by 7% in the September quarter compared with 1.2% in the previous quarter, according to the government statistics.5

The pick-up in recent period in economic growth provides the country’s Central Bank with enough leeway to keep interest rates on hold on December 6 in the wake of an increase in inflationary pressures. Currently, the benchmark rate is at its lowest in seven years, while consumer price inflation has surged to a seven-month high, inching towards the Central Bank’s medium-term inflation target range of 4%.1

Growth in India is also expected to increase on the back of higher levels of private investments resulting from a landmark proposal to recapitalize struggling state-run banks. This move may lead to more credit being made available to industry, leading to higher investment growth.1

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Speculation or stated beliefs about future events, such as market and economic conditions, company or security performance, upcoming product offerings or other projections are “forward-looking statements.” These forward-looking statements represent the beliefs of the speaker or author and do not necessarily represent the views of Excel. General business, market, economic and political conditions could cause actual results to differ materially from what the speaker or author presently anticipates or projects. The information presented here is for informational and illustrative purposes only and is not intended to provide specific financial, investment, or other advice to you, and should not be acted or relied upon in that regard without seeking the advice of a professional. Particular investments or trading strategies should be evaluated relative to each individual. Information provided by external sources is subject to change at any time. Excel Funds is not responsible for the accuracy, reliability or timeliness of the information supplied by external sources. Users wishing to rely upon this information should consult directly with the source of the information. Content provided by external sources is not subject to official languages, privacy and accessibility requirements.

Diversifying your investments globally can potentially reduce your risk and enhance your returns. In fact, global diversification is one of the fundamental tenets of modern portfolio theory, developed by Nobel Prize winning economist, Harry Markowitz. It is a framework for putting together a portfolio of assets in order to maximize expected return for a given level of risk.1

Here are five reasons why your investments should be globally diversified.

Access to wider range of investment opportunities

The Canadian market is narrowly focused. It represents only 2.9% of world equity market capitalization2, which means that over 97% of investment opportunities, measured by market capitalization, exist outside of Canada. In addition, stocks on the S&P/TSX Composite Index are heavily concentrated in three sectors – Financials, Energy and Materials –comprising 68% of the index.3

Therefore, when you don’t invest in a globally diversified portfolio, you are missing out on the opportunity to participate in potential global growth opportunities in a range of sectors such as Technology, Healthcare, Telecommunications and Consumer Staples which are underrepresented in the Canadian market.

Having your eggs in many different baskets is expected to lower your risks

Global diversification allows you to put your eggs in many different baskets with the expectation to lower your investment risks. You can diversify your portfolio by geography, by sector and by country which may reduce your risks. Typically, the performance of different market sectors and companies in different countries vary over time. Some will make gains while others will make losses. When you hold a diversified portfolio, your gainers and losers are expected to offset each other. Comparatively, if you invest in only a single market, your portfolio is expected to bear the full impact of market gyrations in any given period.

Enables investing in uncorrelated assets

The assets in a globally diversified portfolio are typically less correlated because they move in different directions at different times. By investing in a global portfolio which holds assets that are uncorrelated or have a low correlation, your total portfolio is expected to have less risk than the weighted average risk of its parts.

Potentially higher risk-adjusted returns

Markowitz demonstrated that a diversified portfolio can potentially provide improved performance and lower your risk versus investing in individual asset. This is why he referred to the benefit of diversification as the only “free lunch” in finance. You can potentially get higher risk adjusted returns by holding a diversified portfolio. Therefore, instead of sticking to investing in Canada and other developed markets, it is important to invest globally. 1

Emerging markets an essential component of global diversification

Emerging markets should be an integral component of globally diversified portfolios. They represent a potentially larger and growing investable universe which cannot be ignored in your asset allocation decisions. In 1996, the equity market capitalization of emerging markets was just US$2 trillion making up just 11% of the total global market cap. By 2030, the same is forecast to reach US$111 trillion, accounting for 39% of global equity market capitalization.4

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Speculation or stated beliefs about future events, such as market and economic conditions, company or security performance, upcoming product offerings or other projections are “forward-looking statements.” These forward-looking statements represent the beliefs of the speaker or author and do not necessarily represent the views of Excel. General business, market, economic and political conditions could cause actual results to differ materially from what the speaker or author presently anticipates or projects. The information presented here is for informational and illustrative purposes only and is not intended to provide specific financial, investment, or other advice to you, and should not be acted or relied upon in that regard without seeking the advice of a professional. Particular investments or trading strategies should be evaluated relative to each individual. Information provided by external sources is subject to change at any time. Excel Funds is not responsible for the accuracy, reliability or timeliness of the information supplied by external sources. Users wishing to rely upon this information should consult directly with the source of the information. Content provided by external sources is not subject to official languages, privacy and accessibility requirements.

Moody's Investors Service ("Moody's"), the global credit rating agency, today upgraded the Government of India's local and foreign currency issuer ratings to Baa2 from Baa3 and changed the outlook on the rating to stable from positive.

In addition, Moody's also upgraded India's local currency senior unsecured rating to Baa2 from Baa3 and its short-term local currency rating to P-2 from P-3.

Moody's has also raised India's long-term foreign-currency bond ceiling to Baa1 from Baa2, and the long-term foreign-currency bank deposit ceiling to Baa2 from Baa3. The short-term foreign-currency bond ceiling remains unchanged at P-2, and the short-term foreign-currency bank deposit ceiling has been raised to P-2 from P-3. The long-term local currency deposit and bond ceilings remain unchanged at A1.

“This is great news for the Indian economy as well as businesses which will be able to borrow at lower costs,” says Bhim D. Asdhir, President & CEO of Excel Funds Management Inc. “Indian bonds will also get huge boost, benefitting the Excel India Balanced Fund,” he adds.

According to a release from Moody’s, the decision to upgrade the ratings is underpinned by its’ expectation that “continued progress on economic and institutional reforms will, over time, enhance India's high growth potential and its large and stable financing base for government debt, and will likely contribute to a gradual decline in the general government debt burden over the medium term.”

Moody's believes “that the reforms put in place have reduced the risk of a sharp increase in debt, even in potential downside scenarios.”

It recognizes that government efforts to reduce corruption, formalize economic activity and improve tax collection and administration, including through demonetization and the GST, should contribute to the further strengthening of India's institutions. On the fiscal front, efforts to improve transparency and accountability are expected to enhance India's fiscal policy framework and strengthen policy credibility.

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Speculation or stated beliefs about future events, such as market and economic conditions, company or security performance, upcoming product offerings or other projections are “forward-looking statements.” These forward-looking statements represent the beliefs of the speaker or author and do not necessarily represent the views of Excel. General business, market, economic and political conditions could cause actual results to differ materially from what the speaker or author presently anticipates or projects. The information presented here is for informational and illustrative purposes only and is not intended to provide specific financial, investment, or other advice to you, and should not be acted or relied upon in that regard without seeking the advice of a professional. Particular investments or trading strategies should be evaluated relative to each individual. Information provided by external sources is subject to change at any time. Excel Funds is not responsible for the accuracy, reliability or timeliness of the information supplied by external sources. Users wishing to rely upon this information should consult directly with the source of the information. Content provided by external sources is not subject to official languages, privacy and accessibility requirements.

Attending the Association of Southeast Asian Nations (ASEAN) Summit held in Manila, Philippines on November 10 -14, India’s Prime Minister Narendra Modi highlighted the enormous progress India has made under his leadership.

“(The) task of transforming India is proceeding at an unprecedented scale. We are working day and night towards easy, effective and transparent governance,” he stated, adding that “I will continue doing the work for the people who chose me.”

Here are some of Modi’s key messages:

India has climbed 30 places in the World Bank’s Ease of Doing Business Index this year, representing the biggest jump by any country this year.

India has emerged as a frontrunner in attracting Foreign Direct Investment (FDI) because it is now a globally integrated economy.

Using technology to reach out to people has resulted in a significant increase in digital transactions, including increasing banking awareness through the Jan DhanYojna initiative.

The country’s Jan DhanYojna initiative has helped people develop a saving attitude, resulting in deposits of Rs 67000 crore in new accounts since its inception.

Almost 1200 outdated laws have been repealed in the last three years and processes to start new companies have been simplified in keeping with the government’s emphasis on ‘Minimum Government, Maximum Governance’.

Modi Meets with Trump

Good reports coming out of India: US President Donald Trump

PM Modi met with US President Donald Trump in a separate bilateral meeting at the ASEAN Summit.

The thrust of the bilateral talks was mainly on economic issues, trade and investment.

Modi said that the relations between the two nations are growing and that the two countries are working for future interests of Asia and humanity.

Trump noted that there are good reports coming in from India on the economic front.

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Speculation or stated beliefs about future events, such as market and economic conditions, company or security performance, upcoming product offerings or other projections are “forward-looking statements.” These forward-looking statements represent the beliefs of the speaker or author and do not necessarily represent the views of Excel. General business, market, economic and political conditions could cause actual results to differ materially from what the speaker or author presently anticipates or projects. The information presented here is for informational and illustrative purposes only and is not intended to provide specific financial, investment, or other advice to you, and should not be acted or relied upon in that regard without seeking the advice of a professional. Particular investments or trading strategies should be evaluated relative to each individual. Information provided by external sources is subject to change at any time. Excel Funds is not responsible for the accuracy, reliability or timeliness of the information supplied by external sources. Users wishing to rely upon this information should consult directly with the source of the information. Content provided by external sources is not subject to official languages, privacy and accessibility requirements.

The Indian public sector banks (PSBs) have been under stress as the total amount of non-performing assets had risen to US $150 billion[1]. These non-performing loans have severely restricted the ability of PSBs to extend further loans. Limited access to credit impacted the ability of businesses to make fresh investments and adversely impacted their growth. In summary, this overhanging issue has been a headwind to the growth of the economy.

Corrective Measures Proposed

The government of India announced it would inject US $32 billion into the PSBs to provide them relief. US $2.5 billion will come from the budget, US $8 billion will be raised from markets by the banks over the next 2 years and the rest will come through the issuance of “recapitalization bonds” over the current and next fiscal year. [2]

Expected Outcomes

Investors see this move as a positive since it could help remove a significant overhang on credit availability, which with time might allow for higher loan growth to further encourage investment.

Competition between banks will likely reduce the cost of lending for businesses[3]. As credit becomes more readily available, a virtuous cycle of investment can be expected to kick start in the upcoming months.

The issue of Moral Hazard

One of the key issues with this decision is the question of moral hazard. It is true that banks are being bailed out even though they were at fault and were expected to exercise better judgment regarding loan lending practices. However, the government had to take this decision keeping in mind the greater interest of the economy. Speaking on the issue, Arvind Subramanian, India’s Chief Economic Advisor, states, “To some extent, moral hazard is unavoidable. In the real world, there are no costless actions, policy makers have to balance the perverse incentives created against the necessity of reviving the economy and creating growth and jobs.”

One of the ways by which the government is attempting to address the issue of moral hazard, is by adopting a differential approach towards allocation of recapitalization funds. Stronger banks with better track record are likely to get a preference in the allocation of funds.

Impact on Fiscal Deficits/Targets

Under the IMF accounting practices, the recapitalization move ought to be treated as “below the line” which means it should not be treated as part of the fiscal deficit since this move does not directly add to demand for goods and services.[4] However, under the Indian government accounting practice, the recapitalization shall be considered part of the deficit. Experts believe that the recapitalization move will have positive effects in multiple related sectors of the economy (multiplier effect) and may improve the overall investor sentiment.[5]

The plan has been positively received by rating agencies such as Moody’s and Fitch. Commenting on the development, Srikanth Vadlamani, Moody's Senior Credit Officer said, “Even if only the recap bonds and the already announced budgetary support are factored in, the announced capital infusion should be able to comfortably address the bank’s capital requirements.”[6]

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.

Speculation or stated beliefs about future events, such as market and economic conditions, company or security performance, upcoming product offerings or other projections are “forward-looking statements.” These forward-looking statements represent the beliefs of the speaker or author and do not necessarily represent the views of Excel. General business, market, economic and political conditions could cause actual results to differ materially from what the speaker or author presently anticipates or projects. The information presented here is for informational and illustrative purposes only and is not intended to provide specific financial, investment, or other advice to you, and should not be acted or relied upon in that regard without seeking the advice of a professional. Investments or trading strategies should be evaluated relative to each individual. Information provided by external sources is subject to change at any time. Excel Funds is not responsible for the accuracy, reliability or timeliness of the information supplied by external sources. Users wishing to rely upon this information should consult directly with the source of the information. Content provided by external sources is not subject to official languages, privacy and accessibility requirements.

The following is a summary of our conversation with Atul Penkar, the Portfolio Manager of Excel India Fund, when he came to our headquarters during the Excel India Roadshow “Expert Insights into India: The World’s Growth Giant” in the middle of September this year. For brevity, we have paraphrased his responses.

Firstly, the long-term growth outlook for the Indian economy looks positive. The reforms that the Indian government initiated in the last three years, have laid a very strong foundation. We can expect to see material gains to the economy, because of these reforms, over the next three to five years and growth to accelerate from current levels.

Secondly, the demand from both urban and rural sectors is expected to pick up. Over the past 12 months, we witnessed a softness in demand due to demonetization, which occurred late last year, and more recently due to the GST rollout. Therefore, demand is now certainly expected to make a comeback, which is positive news.

Finally, we are at the bottom end of the earnings growth recovery cycle. We can soon expect to see corporate earnings picking up and the same reflected in the market behavior since markets tend to mirror earnings’ growth.

Therefore, it’s a good time to invest in the Indian equity markets now.

The Indian equity market is unique. It has over 6,000 listed companies and the performance disparity between the index and companies outside of it can be quite high. For example, the index may provide 14% or 15% annual compounded returns over 5 years, but there are stocks outside of the index that have delivered much returns. In fact, some stocks in our portfolio have grown almost 5 to 6 times over the past 5 years. Therefore, having on-the-ground presence, bottom-up stock picking and active portfolio management approach can really help generate alpha in a market like India.

How does investing in India differ from investing in other emerging markets?

The fundamental difference between India and other emerging markets lies in the very nature of India’s economy. Almost two thirds of India’s economy is driven by domestic consumption. Hence, the major driver of India’s economic growth has been India’s favorable demographic profile. India has a population of 1.3 billion and a median age of 27. It’s a very young country where consumption should continue to remain very strong over the next 3 to 4 decades. In the last 16 to 17 years, India’s GDP has grown between 7 to 8 percent. That’s a very healthy rate of growth for such a long period of time. Because of these structural growth drivers, India’s GDP should continue to grow between 7 to 8 percent over the next 5 to 10 years.

What are the corporate governance structures and accounting standards like in India?

The corporate governance and accounting standards, in India, have evolved in the last many years. All listed companies have a professional board and independent directors who are accountable. As far as accounting standards are concerned, India has adopted IFRS (International Financial Reporting Standards), which is in line with the global practice. Our regulator has also mandated companies to follow very stringent disclosures, to ensure uniformity and transparency in communication between companies and investors.

Any global event, which could take the oil price back to $100 levels could potentially induce volatility or result in a pullback in the Indian markets since over 70% of India’s oil requirements are fulfilled by imports. Political uncertainties that could pause economic reforms are also a potential risk. That said, reforms in India have occurred regardless of the political party at the center. Ultimately, the structural drivers of India should continue to drive the economic growth in India.

3 or 4 years ago, the retail inflation, which is the CPI, used to hover above 10%, consistently. Today, it has come down dramatically and stays close to 3% to 4% levels. With inflation coming down, the interest rates have gone down as well since RBI’s monetary policy is targeted towards maintaining inflation in the 4% (+-2%) range. In the last two years, the interest rate has come down by almost 200 basis points. With inflation remaining stable, the interest rates in India should remain benign for the next couple of years.

We estimate about 11 to 12% growth in earnings for FY18, and going forward into FY19, we expect about 19 to 20% growth in earnings. The major driver of earnings growth, in FY19, will be the demand recovery, especially in the rural sector which had gone down significantly, after demonetization.

The government should continue to spend on infrastructure development (roads, railways, port development, or power distribution etc.). In the near term, this should ensure that the investments in the economy remain robust.

Capacity utilization is another factor that is expected to drive earnings growth. Post demonetization, the capacity utilization had come down from over 85% to current levels of 70 to 72%. As demand recovers, the capacity utilization should also go up bringing about economies of scale which will, in turn, drive the margins up.

Finally, as corporate interest rates go down, earnings can be expected to grow at a much faster rate, compared to the revenue growth.

Our investment philosophy is growth at a reasonable price (GARP). We identify companies with a strong competitive advantage that are run by a strong management. Efficiency of capital allocation, and the return on equity which the company generates on a sustainable basis are extremely important considerations. At the end of the day, sustained earnings growth and the quality of those earnings, is what matters the most.

As far as portfolio construction is concerned, we adopt both top-down as well as bottom-up approaches. The top-down approach is used to identify the sectors to invest in. Based on macro analysis and evaluation, we identify sectors which appear positive from a medium to long term perspective and decide where we would like to be overweight or underweight on those sectors.

A bottom-up approach is then employed to identify companies in those sectors, which are growing faster than their peers and which may also be outside the benchmark index. This ultimately translates into better alpha generation in the portfolio because alpha generation is ultimately a function of stock selection. For instance, in the Excel India Fund, 40% of the portfolio is outside the benchmark index. This really helps us to generate alpha in the portfolio.

What is your medium to long term perspective on Indian equity markets?

Investing in Indian equity markets has been quite rewarding over the last 15 - 16 years. The index alone has delivered almost 13.5% returns in the last 15 - 16 years and our funds have consistently outperformed the index. More importantly, looking at the growth prospects of the Indian economy going forward, we believe that there are healthy returns to be made by investing in Indian equity markets from medium to long-term perspective.

The Indian market has done well, and has got re-rated in the last few years, because of political stability and the progressive reforms undertaken by the current government. At present, India has very strong and robust macroeconomic fundamentals. It is on a fiscal consolidation path where the government is targeting the fiscal deficit to come down to 3% in the next couple of years. Current account deficit is also under control – about less than 1% – and is likely to remain stable within 1 to 1.5% for the next few years. Finally, India has over US $400 billion in foreign-exchange reserves which is a massive rise from about US $213 billion in mid-2013 when the Taper Tantrum occurred. And that’s the reason why, in the last 3 to 4 years, Indian currency has been one of the best performing currencies among countries in emerging markets. The Indian currency is likely to remain stable versus the U.S. dollar going forward.

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.

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The vast majority of Canadian investors are under the impression that emerging markets are inherently riskier than developed markets. The underlying truth is that all markets, developed as well as emerging markets present some level of risk.

In the case of emerging markets, it is important to understand that this is not a homogeneous group of countries. Each market has its own unique growth drivers, and risks.

Emerging markets are perceived to be riskier than their developed counterparts for two primary reasons:

Risk is priced into emerging markets, whereas it is taken for granted by the domestic investor base in developed countries – which tends to have a home country bias. Canadian investors that allocate funds to the emerging markets are compensated for the level of risk they take with the possibility of greater returns; and

Emerging markets tend to experience greater price movements which lead to the perception of higher risk. However, greater variability in returns is not necessarily equal to higher risk.

The fundamental flaw in investor thinking is that they still view the world from a core-periphery standpoint, where developed markets are at the core and emerging markets are at the periphery and any market outside the core is automatically regarded as riskier.

This view is largely outdated as emerging markets have ‘grown up’ and are in fact the key drivers of global growth. In fact, almost 80% of global economic growth is driven by the emerging markets.1

In terms of market capitalization, emerging markets currently account for 11% of total global equity float and over 33% of total global market capitalization.2

Emerging markets also offer investors greater scope for diversification and consequently help towards risk reduction, when included in a broader portfolio, as there are significantly more emerging market nations than developed markets.

In conclusion, there are significant misperceptions about the challenges and rewards of investing in emerging markets. More often than not, the risks are overstated and it is more a question of variability in returns and investor tolerance for this volatility, as opposed to emerging markets being inherently riskier than developed markets.

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.